Charles Purdy comments on sterling lacking direction in the short term
Charles said: “A positive end to the week saw sterling make some small gains against both the euro and US dollar on Friday. Economic growth was estimated to have slowed slightly to 0.7% over the previous quarter, coming in line with the consensus forecast. US new home sales in comparison failed to pick up as expected, with the US dollar suffering on the back of this.
“A quiet week lies ahead for sterling, with little key economic data being released for the UK. Therefore it is likely to be a week where sterling is more influenced by events elsewhere. Monday sees a speech from the deputy Governor of the Bank of England, and investors are expected to be listening intently for any further clues regarding monetary policy. Aside from this, housing inflation figures are set to be released and show an increase of 0.4% in house prices over the past month. We will also see the release of an independent survey of consumer confidence on Friday, providing insight into the overall economic situation in the UK.
“Eurozone survives bank stress test results – Friday saw the euro hold flat against the majority of its peers as traders acted with caution ahead of the release on Sunday of the stress tests on European banks. The expectations were that we would see Greek, Cypriot, Portuguese and Spanish banks come in with some worrying figures, but apprehension was offset by some positive data out of German the Eurozone’s flagship economy. In actuality the bank stress tests seem to have had less market impact than expected. Italy seemed to have the longest list of banks that needed additional funds and quite remarkably Spain had none. It has to be remembered that a lot of banks have been raising additional funds in the last year so overall it seems these stress tests have had the desired results.
“Another interesting week on the data-front is expected, with German economic health sentiment figures being released this morning. There is also a raft of retail sales, employment, and growth figures due from across the bloc later this week, with Friday seeing the release of October inflation figures for the entire Eurozone.
“US Dollar affected by economic data and Ebola in New York – the US dollar finished last week on a disappointing note, thanks to both economic data and the confirmed diagnosis of Ebola in New York. Elsewhere the new home sales figure from the country were below estimates, which also hindered the dollar’s performance.
“This week starts with medium intensity, with the pending home sales due today. Tomorrow sees the first pair of significant releases – first the durable goods orders, followed by consumer confidence. Mid-week will again bring the most important news, as the Federal Reserve have their latest meeting on policy and rates. This is a focus for investors at present, so they will be keen to see if there are any clues as to whether this will happen sooner rather than later. Thursday continues the release of influential information, with some key figures including the growth shown in the advance GDP and the ever important unemployment claims. In addition to this, Chairwoman of the Federal Reserve Janet Yellen will be speaking, potentially giving further clues as to their feeling. Friday brings a quieter end to the week.
“The Japanese yen recovers against the dollar – yen recovered from two-week lows this week, as the first case of Ebola in New York City – a major financial city – was confirmed on Friday. The Yen had been expecting a poor week against the US Dollar, thanks to US Treasury yields, solid inflation and jobless claims data, but the ongoing worries over ISIS and the health of the world economy on the whole at the current time generally mean that it can take very little news or change of sentiment to rattle market confidence.
“It was an up and down week for the Canadian dollar as it generally stayed strong against its major peers. The currency was strengthened on the back of the Bank of Canada’s removal of forward guidance and its neutral bias, as well as oil prices finally stabilising. The shootings in Parliament this week left the Canadian dollar on the edge last week, as a post-meetings press conference was cancelled. Looking forward to next week there is important GDP data out on Friday – with any increase on last time’s figure of 0% proving Canada is heading in the right direction.”
